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STOCK ISSUANCE (NONCASH ASSETS, SUBSCRIPTIONS, AND TREASURY STOCK) Smith & Cline had the following stock transactions during the year: (a) Issued 5,000 shares of common stock with a $5 par value in exchange for real estate (land) with a fair market value of $27,500. (b) Issued 7,500 shares of common stock with a $5 par value and $6 fair market value in exchange for a building with an uncertain fair market value. (c) Received subscriptions for 10,000 shares of $5 par common stock for $65,000. (d) Received a payment of $30,000 on the stock subscription in transaction (c). (e) Received the balance in full for the stock subscription in transaction (c) and issued the stock. (f) Purchased 1,000 shares of its own $5 par common stock for $7 a share. (g) Sold 500 shares of the treasury stock in transaction (f) for $7.50 a share. (h) Sold 500 shares of the treasury stock in transaction (f) for $6.75 a share. Prepare general journal entries for these transactions, identifying each by letter.

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College Accounting, Chapters 1-27 ...

22nd Edition
James A. Heintz + 1 other
Publisher: Cengage Learning
ISBN: 9781305666160

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Section
BuyFindarrow_forward

College Accounting, Chapters 1-27 ...

22nd Edition
James A. Heintz + 1 other
Publisher: Cengage Learning
ISBN: 9781305666160
Chapter 20, Problem 4SEA
Textbook Problem
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STOCK ISSUANCE (NONCASH ASSETS, SUBSCRIPTIONS, AND TREASURY STOCK) Smith & Cline had the following stock transactions during the year:

  1. (a) Issued 5,000 shares of common stock with a $5 par value in exchange for real estate (land) with a fair market value of $27,500.
  2. (b) Issued 7,500 shares of common stock with a $5 par value and $6 fair market value in exchange for a building with an uncertain fair market value.
  3. (c) Received subscriptions for 10,000 shares of $5 par common stock for $65,000.
  4. (d) Received a payment of $30,000 on the stock subscription in transaction (c).
  5. (e) Received the balance in full for the stock subscription in transaction (c) and issued the stock.
  6. (f) Purchased 1,000 shares of its own $5 par common stock for $7 a share.
  7. (g) Sold 500 shares of the treasury stock in transaction (f) for $7.50 a share.
  8. (h) Sold 500 shares of the treasury stock in transaction (f) for $6.75 a share.

Prepare general journal entries for these transactions, identifying each by letter.

To determine

Prepare general entries for each transaction.

Explanation of Solution

Common stock:

  • These are the ordinary shares that a corporation issues to the investors in order to raise funds. In return, the investors receive a share of profit from the profits earned by the corporation in the form of dividend.
  • It provides the owners’ to vote at stockholders’ meeting, purchase additional shares if more shares are issued by the corporation, share in earnings distributions and share in the assets if the corporation liquidates.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Record the journal entries:

(a) Issued 5,000 shares of common stock with a $5 par value in exchange for real estate (land) with a fair market value of $27,500.

DateAccount Title and ExplanationDebit ($)Credit ($)
Land 27,500 
Common Stock (5,000shares×$5) 25,000
Paid-In Capital in Excess of Par— Common Stock ($27,500$25,000) 2,500
 ( To record issuance of common stock in exchange for real estate-land at premium) 

Table (1)

(b) Issued 7,500 shares of common stock with a $5 par value and $6 fair market value in exchange for a building with an uncertain fair market value.

DateAccount Title and ExplanationDebit ($)Credit ($)
Building (7,500shares×$6) 45,000 
Common Stock (7,500shares×$5)37,500 
Paid-In Capital in Excess of Par— Common Stock ($45,000$37,500) 7,500
( To record issuance of common stock in exchange for real building at premium) 

Table (2)

(c) Received subscriptions for 10,000 shares of $5 par common stock for $65,000.

DateAccount Title and ExplanationDebit ($)Credit ($)
Common Stock Subscriptions Receivable 65,000 
Common Stock Subscribed (10,000shares×$5)50,000 
Paid-In Capital in Excess of Par— Common Stock ($65,000$50,000) 15,000
( To record subscriptions received) 

Table (3)

(d) Received a payment of $30,000 on the stock subscription in transaction (c).

DateAccount Title and ExplanationDebit ($)Credit ($)
Cash 30,000 
Common Stock Subscriptions Receivable 30,000
( To record subscriptions received) 

Table (4)

(e) Received the balance in full for the stock subscription in transaction (c) and issued the stock

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Chapter 20 Solutions

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
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